"Government subsidies encourage bad planning"


Popular Mechanics is sounding very libertarian, but all they are doing is reporting the facts
Wow. Popular Mechanics has it right with this article.

MYTH: "We will rebuild [the Gulf Coast] bigger and better than ever." --Haley Barbour, Miss. Gov., The Associated press, Sept. 3, 2005

REALITY: In the past 25 years, the tiny community of Dauphin Island, Ala., has been hit by at least six hurricanes. Residents there carry insurance backed by the federal government, and they've collected more than $21 million in taxpayer money over the years to repair their damaged homes. Not bad, considering their premiums rarely go up and they are seldom denied coverage--even after Katrina almost completely demolished the barrier island at the entrance to Mobile Bay.

"It's like a guy getting inebriated and wrecking his Ferrari four or five times," says David Conrad of the National Wildlife Federation (NWF). "Eventually, a private insurer would say no. It doesn't work that way with the federal flood insurance program."

The National Flood Insurance Program (NFIP), administered by FEMA, was started in 1968 for homeowners who live in flood-prone areas considered too great a risk by private insurers. And for more than 30 years, the program was self-supporting. But studies by Conrad's NWF team revealed a disturbing fact: Just 1 to 2 percent of claims were from "repetitive-loss properties"--those suffering damage at least twice in a 10-year period. Yet, those 112,000 properties generated a remarkable 40 percent of the losses--$5.6 billion. One homeowner in Houston filed 16 claims in 18 years, receiving payments totaling $806,000 for a building valued at $114,000.

Just as significantly, the five Gulf Coast states accounted for half the total of repetitive-loss costs nationwide. Taxpayers across the country are paying for a minute number of people to rebuild time and time again in the path of hurricanes.

That is proving to be an expensive habit. Following Katrina, Rita and Wilma in 2005, claims could exceed $22 billion--more than the total amount paid in premiums in the program's 38-year history. In mid-November, the NFIP ran out of money; to pay claims, Congress will have to authorize FEMA to borrow more money.

NEXT TIME: Folks in Tornado Alley and along the San Andreas fault don't get federally backed insurance, so why should taxpayers subsidize coastal homes, many of them vacation properties? Before we start rebuilding "bigger and better," Congress should reform the flood insurance program. A good start: Structure premiums so the program is actuarially sound and clamps down on repetitive claims.

This isn't some wild-eyed libertarian telling you this, this is Popular Mechanics. The magazine has a reputation for delivering well-investigated and well researched pieces. There is no ideological axe to grind here.

I only wish they had gone that step further and realized that almost all government social programs encourage bad choices.

— NeoWayland

Posted: Fri - March 3, 2006 at 05:25 AM  Tag


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